Economic Insights
A Historical Perspective on Recent Movements in Canada’s Purchasing Power Parity
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by Ryan Macdonald and Luke Rispoli
Economic Analysis Division
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This Economic Insights article presents quarterly estimates from Statistics Canada for the U.S.–Canada purchasing power parity. Similar to earlier articles that examined differences in price levels between Canada and the United States, this short article shows that the relative price level between Canada and the United States does not adjust as much as the exchange rate in the short-run, but that over longer periods of time they move similarly.
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Introduction
The U.S.–Canada purchasing power parity (PPP) is a measure of the relative price level between Canada and the United States. It measures the difference, in dollars, that exists between the two countries for an individual or firm wishing to purchase an equivalent basket of goods and services in each country. In the third quarter (Q3) of 2016, the U.S.–Canada PPP was US$0.84, meaning that for every dollar Canadians spent on goods and services, Americans spent 84 cents to buy comparable items.
The PPP is often interpreted as an equilibrium, or a long-run, exchange rate.Note 1 But, rather than being based on the prices paid in exchange-rate markets, it is calculated by aggregating the prices paid for traded and non-traded goods and services.Note 2 PPPs are not subject to the same short-run effects as market exchange rates, and the presence of non-traded goods and services means that not all goods and services used in the construction of PPPs are subject to arbitrage forces.Note 3 Nevertheless, they are viewed as more suitable for assessing the relative price level between two nations at a given point in time than market exchange rates due to their relative stability. Consequently, PPPs are primarily used to convert national price levels when making international comparisons. They move similarly to exchange rates over long periods of time, but do not exhibit the same short-run volatility.
Long-run movements in purchasing power parity and the exchange rate
Since the early 1970s, when Canada and the United States introduced floating exchange rates, the U.S.–Canada PPP and the U.S.–Canada exchange rate have moved in a broadly similar direction, but the market exchange rate exhibited more variation (Chart 1). The PPP and the exchange rate experienced a long decline or depreciation during the 1970s and 1980s. The PPP was stable in the 1990s, as the Canadian dollar continued to depreciate. In the 2000s, the PPP rose while the Canadian dollar appreciated, and both showed downward adjustments around the onset of the global economic recession. After the recession, the Canadian dollar subsequently appreciated, only to depreciate sharply beginning around 2013. The PPP, however, was stable until 2014 and declined modestly thereafter.
The larger fluctuations in the exchange rate over the last 40 years means that the two conversion rates were equal in the middle of the 1970s, in the early 1990s and at several points since 2000. However, in the intervening periods, the exchange rate often differed significantly from the PPP as it responded to short-run phenomena such as interest rate changes, or to changes in commodity prices that had stronger effects on currency markets than on domestic price levels.
Recent movements in relative prices
Over the resource cycle of the last 15 years, the exchange rate reached a low of US$0.63 in 2002 Q1, after which the Canadian dollar began a multi-year appreciation. In 2007 Q4, the U.S.–Canada exchange rate averaged US$1.02, and, following a rapid depreciation and appreciation brought about by global economic recession and recovery dynamics, the value of the Canadian dollar recovered to an average of US$1.03 in 2011 Q2. The value of the dollar began to decline in 2011 Q2, slowly at first, then rapidly after 2012 Q4. By 2016 Q3, the U.S.–Canada exchange rate had returned to US$0.77, a level similar to that in 2004.
The PPP also increased between 2002 and 2007, with the most rapid gains occurring between 2002 Q4 and 2006 Q1. The U.S.–Canada PPP remained roughly stable around 2006 Q1 levels until the onset of the global recession in 2007 Q4. Between 2007 Q4 and 2009 Q1, the U.S.–Canada PPP declined from US$0.866 per Canadian dollar to US$0.846 per Canadian dollar. Despite a rebound in the market exchange rate, the PPP remained stable at around US$0.848 until 2014. During this period, the market exchange rate was greater than US$1.00 per Canadian dollar in a number of quarters. Finally, beginning in 2014 Q2 through to 2016 Q1, the U.S.–Canada PPP declined. This coincided with part, but not all, of the period during which the Canadian dollar depreciated. As of 2016 Q3, similar to the exchange rate, the PPP had returned to a level similar to that in 2004.
Description for Chart 1
Year and quarter | U.S.–Canada PPP | U.S.–Canada market exchange rate |
---|---|---|
US$ per CAN$ | ||
1970 Q1 | 1.054 | 0.932 |
1970 Q2 | 1.060 | 0.942 |
1970 Q3 | 1.061 | 0.977 |
1970 Q4 | 1.069 | 0.981 |
1971 Q1 | 1.072 | 0.992 |
1971 Q2 | 1.067 | 0.988 |
1971 Q3 | 1.069 | 0.984 |
1971 Q4 | 1.065 | 0.998 |
1972 Q1 | 1.068 | 0.997 |
1972 Q2 | 1.062 | 1.012 |
1972 Q3 | 1.051 | 1.017 |
1972 Q4 | 1.047 | 1.011 |
1973 Q1 | 1.043 | 1.003 |
1973 Q2 | 1.038 | 1.000 |
1973 Q3 | 1.029 | 0.996 |
1973 Q4 | 1.022 | 1.000 |
1974 Q1 | 1.017 | 1.020 |
1974 Q2 | 1.008 | 1.036 |
1974 Q3 | 0.999 | 1.020 |
1974 Q4 | 0.997 | 1.014 |
1975 Q1 | 0.996 | 1.001 |
1975 Q2 | 0.988 | 0.979 |
1975 Q3 | 0.974 | 0.970 |
1975 Q4 | 0.970 | 0.983 |
1976 Q1 | 0.962 | 1.005 |
1976 Q2 | 0.948 | 1.021 |
1976 Q3 | 0.954 | 1.023 |
1976 Q4 | 0.945 | 1.008 |
1977 Q1 | 0.945 | 0.971 |
1977 Q2 | 0.943 | 0.950 |
1977 Q3 | 0.939 | 0.935 |
1977 Q4 | 0.941 | 0.908 |
1978 Q1 | 0.938 | 0.898 |
1978 Q2 | 0.939 | 0.887 |
1978 Q3 | 0.935 | 0.874 |
1978 Q4 | 0.931 | 0.849 |
1979 Q1 | 0.929 | 0.843 |
1979 Q2 | 0.932 | 0.864 |
1979 Q3 | 0.935 | 0.857 |
1979 Q4 | 0.938 | 0.851 |
1980 Q1 | 0.940 | 0.859 |
1980 Q2 | 0.938 | 0.855 |
1980 Q3 | 0.935 | 0.863 |
1980 Q4 | 0.932 | 0.845 |
1981 Q1 | 0.925 | 0.838 |
1981 Q2 | 0.922 | 0.834 |
1981 Q3 | 0.913 | 0.825 |
1981 Q4 | 0.918 | 0.839 |
1982 Q1 | 0.898 | 0.827 |
1982 Q2 | 0.889 | 0.803 |
1982 Q3 | 0.886 | 0.800 |
1982 Q4 | 0.880 | 0.812 |
1983 Q1 | 0.879 | 0.815 |
1983 Q2 | 0.875 | 0.812 |
1983 Q3 | 0.866 | 0.811 |
1983 Q4 | 0.863 | 0.807 |
1984 Q1 | 0.866 | 0.797 |
1984 Q2 | 0.869 | 0.774 |
1984 Q3 | 0.865 | 0.761 |
1984 Q4 | 0.862 | 0.758 |
1985 Q1 | 0.865 | 0.739 |
1985 Q2 | 0.859 | 0.730 |
1985 Q3 | 0.859 | 0.735 |
1985 Q4 | 0.860 | 0.725 |
1986 Q1 | 0.852 | 0.712 |
1986 Q2 | 0.849 | 0.722 |
1986 Q3 | 0.844 | 0.722 |
1986 Q4 | 0.838 | 0.722 |
1987 Q1 | 0.839 | 0.747 |
1987 Q2 | 0.836 | 0.750 |
1987 Q3 | 0.837 | 0.756 |
1987 Q4 | 0.836 | 0.763 |
1988 Q1 | 0.834 | 0.789 |
1988 Q2 | 0.836 | 0.813 |
1988 Q3 | 0.835 | 0.820 |
1988 Q4 | 0.832 | 0.829 |
1989 Q1 | 0.837 | 0.839 |
1989 Q2 | 0.832 | 0.838 |
1989 Q3 | 0.829 | 0.846 |
1989 Q4 | 0.829 | 0.856 |
1990 Q1 | 0.831 | 0.846 |
1990 Q2 | 0.832 | 0.854 |
1990 Q3 | 0.837 | 0.867 |
1990 Q4 | 0.843 | 0.861 |
1991 Q1 | 0.846 | 0.865 |
1991 Q2 | 0.844 | 0.870 |
1991 Q3 | 0.843 | 0.874 |
1991 Q4 | 0.842 | 0.881 |
1992 Q1 | 0.833 | 0.849 |
1992 Q2 | 0.826 | 0.837 |
1992 Q3 | 0.823 | 0.832 |
1992 Q4 | 0.823 | 0.792 |
1993 Q1 | 0.830 | 0.793 |
1993 Q2 | 0.833 | 0.787 |
1993 Q3 | 0.835 | 0.767 |
1993 Q4 | 0.835 | 0.755 |
1994 Q1 | 0.838 | 0.746 |
1994 Q2 | 0.839 | 0.723 |
1994 Q3 | 0.839 | 0.729 |
1994 Q4 | 0.840 | 0.731 |
1995 Q1 | 0.840 | 0.711 |
1995 Q2 | 0.841 | 0.729 |
1995 Q3 | 0.840 | 0.738 |
1995 Q4 | 0.835 | 0.737 |
1996 Q1 | 0.830 | 0.730 |
1996 Q2 | 0.824 | 0.733 |
1996 Q3 | 0.822 | 0.730 |
1996 Q4 | 0.824 | 0.741 |
1997 Q1 | 0.826 | 0.736 |
1997 Q2 | 0.825 | 0.721 |
1997 Q3 | 0.825 | 0.722 |
1997 Q4 | 0.824 | 0.710 |
1998 Q1 | 0.821 | 0.699 |
1998 Q2 | 0.822 | 0.691 |
1998 Q3 | 0.824 | 0.660 |
1998 Q4 | 0.825 | 0.648 |
1999 Q1 | 0.829 | 0.662 |
1999 Q2 | 0.833 | 0.679 |
1999 Q3 | 0.832 | 0.673 |
1999 Q4 | 0.835 | 0.679 |
2000 Q1 | 0.835 | 0.688 |
2000 Q2 | 0.827 | 0.676 |
2000 Q3 | 0.827 | 0.675 |
2000 Q4 | 0.827 | 0.655 |
2001 Q1 | 0.830 | 0.655 |
2001 Q2 | 0.826 | 0.649 |
2001 Q3 | 0.827 | 0.647 |
2001 Q4 | 0.825 | 0.633 |
2002 Q1 | 0.825 | 0.627 |
2002 Q2 | 0.823 | 0.643 |
2002 Q3 | 0.821 | 0.640 |
2002 Q4 | 0.819 | 0.637 |
2003 Q1 | 0.826 | 0.662 |
2003 Q2 | 0.829 | 0.715 |
2003 Q3 | 0.829 | 0.725 |
2003 Q4 | 0.832 | 0.760 |
2004 Q1 | 0.838 | 0.759 |
2004 Q2 | 0.837 | 0.736 |
2004 Q3 | 0.843 | 0.765 |
2004 Q4 | 0.849 | 0.819 |
2005 Q1 | 0.852 | 0.815 |
2005 Q2 | 0.853 | 0.804 |
2005 Q3 | 0.860 | 0.832 |
2005 Q4 | 0.866 | 0.852 |
2006 Q1 | 0.866 | 0.866 |
2006 Q2 | 0.863 | 0.891 |
2006 Q3 | 0.861 | 0.892 |
2006 Q4 | 0.858 | 0.878 |
2007 Q1 | 0.858 | 0.854 |
2007 Q2 | 0.857 | 0.911 |
2007 Q3 | 0.860 | 0.957 |
2007 Q4 | 0.866 | 1.019 |
2008 Q1 | 0.867 | 0.996 |
2008 Q2 | 0.865 | 0.990 |
2008 Q3 | 0.863 | 0.960 |
2008 Q4 | 0.850 | 0.825 |
2009 Q1 | 0.846 | 0.803 |
2009 Q2 | 0.846 | 0.857 |
2009 Q3 | 0.848 | 0.911 |
2009 Q4 | 0.848 | 0.947 |
2010 Q1 | 0.849 | 0.961 |
2010 Q2 | 0.847 | 0.973 |
2010 Q3 | 0.846 | 0.962 |
2010 Q4 | 0.847 | 0.987 |
2011 Q1 | 0.847 | 1.014 |
2011 Q2 | 0.848 | 1.033 |
2011 Q3 | 0.847 | 1.020 |
2011 Q4 | 0.845 | 0.977 |
2012 Q1 | 0.849 | 0.999 |
2012 Q2 | 0.847 | 0.990 |
2012 Q3 | 0.849 | 1.005 |
2012 Q4 | 0.851 | 1.009 |
2013 Q1 | 0.847 | 0.991 |
2013 Q2 | 0.847 | 0.977 |
2013 Q3 | 0.847 | 0.963 |
2013 Q4 | 0.851 | 0.953 |
2014 Q1 | 0.851 | 0.906 |
2014 Q2 | 0.850 | 0.917 |
2014 Q3 | 0.849 | 0.918 |
2014 Q4 | 0.849 | 0.881 |
2015 Q1 | 0.845 | 0.806 |
2015 Q2 | 0.845 | 0.813 |
2015 Q3 | 0.841 | 0.764 |
2015 Q4 | 0.840 | 0.749 |
2016 Q1 | 0.835 | 0.727 |
2016 Q2 | 0.841 | 0.776 |
2016 Q3 | 0.841 | 0.766 |
Note: PPP refers to purchasing power parity. Q refers to quarter. Sources: Statistics Canada, authors' calculations and CANSIM table 176-0064. |
Goods prices versus services prices
The PPP is calculated using a wide variety of prices for consumption and investment goods and services. It aggregates many different prices to measure differences in the overall relative price level. In general, one would expect that for more easily traded items, such as cars or fruit, the price in Canada would be broadly equal to the price in the United States multiplied by the market exchange rate. This hypothesis is known as the law of one price, and it is one theory for how prices in Canada should relate to those in the United States.
In practice, the law of one price rarely holds. Differences in market structure, the presence of trade barriers and transport costs all lead to situations where the law of one price fails.Note 4 Moreover, Canadians and Americans purchase thousands of items, not all of which are traded. For these types of goods or services, it is not clear that the law of one price would, or should, apply.
Since PPPs are composed of many types of products, they can be disaggregated into particular groups to provide a sense of the potential importance of different product types for understanding movements in the overall PPP. One such disaggregation splits products into goods and services. Broadly speaking, the items that are most likely to be subject to the law of one price are goods, and the items that are most likely to be immune to this law are services.
When the U.S.–Canada PPP for goods is compared with the U.S.–Canada PPP for services, the former exhibits a stronger, albeit imperfect, correlation with the nominal exchange rate (Chart 2).
Description for Chart 2
Year and quarter | U.S.–Canada goods PPP | U.S.–Canada services PPP | U.S.–Canada exchange rate |
---|---|---|---|
US$ per CAN$ | |||
1970 Q1 | 0.989 | 1.163 | 0.932 |
1970 Q2 | 0.996 | 1.167 | 0.942 |
1970 Q3 | 1.000 | 1.163 | 0.977 |
1970 Q4 | 1.006 | 1.171 | 0.981 |
1971 Q1 | 1.011 | 1.174 | 0.992 |
1971 Q2 | 1.009 | 1.164 | 0.988 |
1971 Q3 | 1.004 | 1.174 | 0.984 |
1971 Q4 | 1.000 | 1.167 | 0.998 |
1972 Q1 | 1.002 | 1.169 | 0.997 |
1972 Q2 | 0.995 | 1.162 | 1.012 |
1972 Q3 | 0.985 | 1.150 | 1.017 |
1972 Q4 | 0.986 | 1.138 | 1.011 |
1973 Q1 | 0.983 | 1.132 | 1.003 |
1973 Q2 | 0.973 | 1.136 | 1.000 |
1973 Q3 | 0.966 | 1.126 | 0.996 |
1973 Q4 | 0.956 | 1.124 | 1.000 |
1974 Q1 | 0.959 | 1.110 | 1.020 |
1974 Q2 | 0.950 | 1.105 | 1.036 |
1974 Q3 | 0.953 | 1.078 | 1.020 |
1974 Q4 | 0.956 | 1.070 | 1.014 |
1975 Q1 | 0.960 | 1.063 | 1.001 |
1975 Q2 | 0.953 | 1.053 | 0.979 |
1975 Q3 | 0.946 | 1.030 | 0.970 |
1975 Q4 | 0.939 | 1.032 | 0.983 |
1976 Q1 | 0.932 | 1.017 | 1.005 |
1976 Q2 | 0.933 | 0.985 | 1.021 |
1976 Q3 | 0.936 | 0.994 | 1.023 |
1976 Q4 | 0.937 | 0.972 | 1.008 |
1977 Q1 | 0.935 | 0.974 | 0.971 |
1977 Q2 | 0.932 | 0.974 | 0.950 |
1977 Q3 | 0.931 | 0.967 | 0.935 |
1977 Q4 | 0.930 | 0.972 | 0.908 |
1978 Q1 | 0.930 | 0.967 | 0.898 |
1978 Q2 | 0.932 | 0.967 | 0.887 |
1978 Q3 | 0.928 | 0.963 | 0.874 |
1978 Q4 | 0.925 | 0.956 | 0.849 |
1979 Q1 | 0.924 | 0.952 | 0.843 |
1979 Q2 | 0.928 | 0.957 | 0.864 |
1979 Q3 | 0.932 | 0.958 | 0.857 |
1979 Q4 | 0.931 | 0.965 | 0.851 |
1980 Q1 | 0.937 | 0.964 | 0.859 |
1980 Q2 | 0.935 | 0.962 | 0.855 |
1980 Q3 | 0.928 | 0.962 | 0.863 |
1980 Q4 | 0.918 | 0.966 | 0.845 |
1981 Q1 | 0.911 | 0.963 | 0.838 |
1981 Q2 | 0.902 | 0.954 | 0.834 |
1981 Q3 | 0.889 | 0.944 | 0.825 |
1981 Q4 | 0.885 | 0.946 | 0.839 |
1982 Q1 | 0.875 | 0.934 | 0.827 |
1982 Q2 | 0.863 | 0.922 | 0.803 |
1982 Q3 | 0.858 | 0.914 | 0.800 |
1982 Q4 | 0.851 | 0.906 | 0.812 |
1983 Q1 | 0.846 | 0.908 | 0.815 |
1983 Q2 | 0.843 | 0.903 | 0.812 |
1983 Q3 | 0.835 | 0.903 | 0.811 |
1983 Q4 | 0.831 | 0.899 | 0.807 |
1984 Q1 | 0.825 | 0.903 | 0.797 |
1984 Q2 | 0.825 | 0.906 | 0.774 |
1984 Q3 | 0.821 | 0.906 | 0.761 |
1984 Q4 | 0.816 | 0.909 | 0.758 |
1985 Q1 | 0.812 | 0.910 | 0.739 |
1985 Q2 | 0.810 | 0.907 | 0.730 |
1985 Q3 | 0.805 | 0.910 | 0.735 |
1985 Q4 | 0.805 | 0.912 | 0.725 |
1986 Q1 | 0.796 | 0.907 | 0.712 |
1986 Q2 | 0.787 | 0.905 | 0.722 |
1986 Q3 | 0.785 | 0.898 | 0.722 |
1986 Q4 | 0.778 | 0.894 | 0.722 |
1987 Q1 | 0.779 | 0.888 | 0.747 |
1987 Q2 | 0.777 | 0.887 | 0.750 |
1987 Q3 | 0.776 | 0.891 | 0.756 |
1987 Q4 | 0.774 | 0.891 | 0.763 |
1988 Q1 | 0.771 | 0.891 | 0.789 |
1988 Q2 | 0.770 | 0.894 | 0.813 |
1988 Q3 | 0.771 | 0.892 | 0.820 |
1988 Q4 | 0.767 | 0.889 | 0.829 |
1989 Q1 | 0.766 | 0.895 | 0.839 |
1989 Q2 | 0.767 | 0.886 | 0.838 |
1989 Q3 | 0.761 | 0.887 | 0.846 |
1989 Q4 | 0.762 | 0.886 | 0.856 |
1990 Q1 | 0.764 | 0.888 | 0.846 |
1990 Q2 | 0.768 | 0.883 | 0.854 |
1990 Q3 | 0.781 | 0.881 | 0.867 |
1990 Q4 | 0.796 | 0.880 | 0.861 |
1991 Q1 | 0.808 | 0.869 | 0.865 |
1991 Q2 | 0.808 | 0.868 | 0.870 |
1991 Q3 | 0.805 | 0.867 | 0.874 |
1991 Q4 | 0.803 | 0.871 | 0.881 |
1992 Q1 | 0.782 | 0.871 | 0.849 |
1992 Q2 | 0.767 | 0.874 | 0.837 |
1992 Q3 | 0.762 | 0.872 | 0.832 |
1992 Q4 | 0.761 | 0.875 | 0.792 |
1993 Q1 | 0.764 | 0.880 | 0.793 |
1993 Q2 | 0.770 | 0.881 | 0.787 |
1993 Q3 | 0.772 | 0.881 | 0.767 |
1993 Q4 | 0.775 | 0.878 | 0.755 |
1994 Q1 | 0.779 | 0.881 | 0.746 |
1994 Q2 | 0.785 | 0.879 | 0.723 |
1994 Q3 | 0.789 | 0.880 | 0.729 |
1994 Q4 | 0.791 | 0.880 | 0.731 |
1995 Q1 | 0.789 | 0.884 | 0.711 |
1995 Q2 | 0.787 | 0.888 | 0.729 |
1995 Q3 | 0.785 | 0.890 | 0.738 |
1995 Q4 | 0.775 | 0.891 | 0.737 |
1996 Q1 | 0.766 | 0.892 | 0.730 |
1996 Q2 | 0.752 | 0.891 | 0.733 |
1996 Q3 | 0.748 | 0.893 | 0.730 |
1996 Q4 | 0.747 | 0.897 | 0.741 |
1997 Q1 | 0.748 | 0.902 | 0.736 |
1997 Q2 | 0.746 | 0.905 | 0.721 |
1997 Q3 | 0.749 | 0.907 | 0.722 |
1997 Q4 | 0.749 | 0.906 | 0.710 |
1998 Q1 | 0.742 | 0.909 | 0.699 |
1998 Q2 | 0.741 | 0.908 | 0.691 |
1998 Q3 | 0.744 | 0.908 | 0.660 |
1998 Q4 | 0.745 | 0.911 | 0.648 |
1999 Q1 | 0.748 | 0.913 | 0.662 |
1999 Q2 | 0.750 | 0.917 | 0.679 |
1999 Q3 | 0.749 | 0.919 | 0.673 |
1999 Q4 | 0.749 | 0.922 | 0.679 |
2000 Q1 | 0.747 | 0.924 | 0.688 |
2000 Q2 | 0.743 | 0.912 | 0.676 |
2000 Q3 | 0.738 | 0.918 | 0.675 |
2000 Q4 | 0.732 | 0.922 | 0.655 |
2001 Q1 | 0.730 | 0.926 | 0.655 |
2001 Q2 | 0.722 | 0.926 | 0.649 |
2001 Q3 | 0.726 | 0.922 | 0.647 |
2001 Q4 | 0.722 | 0.922 | 0.633 |
2002 Q1 | 0.714 | 0.926 | 0.627 |
2002 Q2 | 0.713 | 0.928 | 0.643 |
2002 Q3 | 0.709 | 0.927 | 0.640 |
2002 Q4 | 0.708 | 0.927 | 0.637 |
2003 Q1 | 0.709 | 0.939 | 0.662 |
2003 Q2 | 0.711 | 0.943 | 0.715 |
2003 Q3 | 0.711 | 0.942 | 0.725 |
2003 Q4 | 0.717 | 0.945 | 0.760 |
2004 Q1 | 0.720 | 0.950 | 0.759 |
2004 Q2 | 0.719 | 0.953 | 0.736 |
2004 Q3 | 0.724 | 0.961 | 0.765 |
2004 Q4 | 0.733 | 0.967 | 0.819 |
2005 Q1 | 0.736 | 0.971 | 0.815 |
2005 Q2 | 0.739 | 0.972 | 0.804 |
2005 Q3 | 0.748 | 0.976 | 0.832 |
2005 Q4 | 0.753 | 0.981 | 0.852 |
2006 Q1 | 0.751 | 0.978 | 0.866 |
2006 Q2 | 0.754 | 0.971 | 0.891 |
2006 Q3 | 0.756 | 0.965 | 0.892 |
2006 Q4 | 0.751 | 0.962 | 0.878 |
2007 Q1 | 0.749 | 0.962 | 0.854 |
2007 Q2 | 0.751 | 0.959 | 0.911 |
2007 Q3 | 0.753 | 0.960 | 0.957 |
2007 Q4 | 0.763 | 0.959 | 1.019 |
2008 Q1 | 0.770 | 0.953 | 0.996 |
2008 Q2 | 0.768 | 0.951 | 0.990 |
2008 Q3 | 0.767 | 0.949 | 0.960 |
2008 Q4 | 0.751 | 0.938 | 0.825 |
2009 Q1 | 0.744 | 0.931 | 0.803 |
2009 Q2 | 0.747 | 0.929 | 0.857 |
2009 Q3 | 0.751 | 0.927 | 0.911 |
2009 Q4 | 0.755 | 0.921 | 0.947 |
2010 Q1 | 0.753 | 0.929 | 0.961 |
2010 Q2 | 0.749 | 0.929 | 0.973 |
2010 Q3 | 0.749 | 0.924 | 0.962 |
2010 Q4 | 0.753 | 0.922 | 0.987 |
2011 Q1 | 0.758 | 0.920 | 1.014 |
2011 Q2 | 0.763 | 0.920 | 1.033 |
2011 Q3 | 0.765 | 0.916 | 1.020 |
2011 Q4 | 0.763 | 0.913 | 0.977 |
2012 Q1 | 0.764 | 0.919 | 0.999 |
2012 Q2 | 0.765 | 0.917 | 0.990 |
2012 Q3 | 0.767 | 0.919 | 1.005 |
2012 Q4 | 0.768 | 0.921 | 1.009 |
2013 Q1 | 0.767 | 0.917 | 0.991 |
2013 Q2 | 0.762 | 0.921 | 0.977 |
2013 Q3 | 0.760 | 0.921 | 0.963 |
2013 Q4 | 0.762 | 0.925 | 0.953 |
2014 Q1 | 0.762 | 0.925 | 0.906 |
2014 Q2 | 0.761 | 0.926 | 0.917 |
2014 Q3 | 0.760 | 0.927 | 0.918 |
2014 Q4 | 0.757 | 0.926 | 0.881 |
2015 Q1 | 0.748 | 0.923 | 0.806 |
2015 Q2 | 0.744 | 0.927 | 0.813 |
2015 Q3 | 0.741 | 0.924 | 0.764 |
2015 Q4 | 0.736 | 0.925 | 0.749 |
2016 Q1 | 0.730 | 0.926 | 0.727 |
2016 Q2 | 0.730 | 0.934 | 0.776 |
2016 Q3 | 0.727 | 0.935 | 0.766 |
Note: PPP refers to purchasing power parity. Q refers to quarter. Sources: Statistics Canada, authors' calculations and CANSIM table 176-0064. |
Since the 1970s, the U.S.–Canada PPP for goods has followed a pattern similar to that of the exchange rate, but with significantly less variation. The long depreciation of the exchange rate between the early 1970s and 2002 had a corresponding decline in the goods PPP. In the period after 2002, while both followed similar broad movements, the U.S.–Canada PPP for goods was far less volatile than the market exchange rate.
Prices for services, on the other hand, have a PPP that follows a distinctly different pattern altogether. The services PPP declined during the 1970s and early 1980s, but then began increasing while the exchange rate depreciated. After 2002, the services PPP rose as the exchange rate appreciated, but then entered a period of decline that lasted until 2011 and that did not accord with exchange rate changes. Finally, over the last three years, the services PPP tended to increase while the exchange rate depreciated.
References
Baldwin, J. R. and R. Macdonald. 2009. PPPs: Purchasing Power or Producing Power Parities? Economic Analysis Research Paper Series, no. 58. Statistics Canada Catalogue no. 11F0027M. Ottawa: Statistics Canada.
Canada. Parliament. Senate. Standing Senate Committee on National Finance. 2013. The Canada-USA Price Gap: Report of the Standing Senate Committee on National Finance. 41st Parliament, 1st session. Ottawa: Senate, Parliament of Canada.
Lafrance, R., and L. Schembri. 2002. “Purchasing power parity: Definition, measurement and interpretation.” Bank of Canada Review (autumn): 27–33.
Macdonald, R. 2009. Do Relative Canada/U.S. Prices Equate to the Exchange Rate? Economic Insights, no. 3. Statistics Canada Catalogue no. 11-626-X. Ottawa: Statistics Canada
Taylor, A., and P. Taylor. 2004. “The purchasing power parity debate.” Journal of Economic Perspectives 18 (4): 135–158.
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